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Sunday, 3 August 2014

A federal court judge in Iowa has
granted a stay in Aviva Life and Annuity Company’s civil
lawsuit against three former Dewey & LeBoeuf executives for allegedly
making false and misleading statements as part of a 2010 bond offering.

The judge also allowed the defendants—former
chairman Steven Davis, former executive director Stephen DiCarmine and former
chief financial officer Joel Sanders—to ask the U.S. Court of Appeals for the
Eighth Circuit to hear an interlocutory appeal of his May 19 decision denying
their motion to dismiss the case on grounds that the insurance company has no standing
because it sold off the bonds and claims that are at the center of the case.

Aviva filed its civil suit against
Davis, DiCarmine and Sanders in December 2012, seven months after the collapse
of Dewey. The insurer claimed it lost 45 percent of its $35 million investment
in the firm’s 2010 bond offering “as a result of false and misleading
statements” by the three defendants, who are accused of violating Iowa state
and federal securities laws in obtaining loans for Dewey.

Last year, the former Dewey
executives filed a motion to dismiss the suit, arguing that Aviva lacked
standing to file the claim because it sold the securities in question to Sea Port Group Securities for $19.2 million
in the same month that Dewey filed for bankruptcy. U.S. District Judge James
Gritzner for the Southern District of Iowa denied the motion on May 19 of this
year.

Then, in June, the defendants asked
Gritzner to stay the civil proceedings pending the outcome of a criminal case
filed in March by Manhattan District Attorney Cyrus Vance against Davis,
DiCarmine and Sanders as well as a fourth defendant—former Dewey client
relations manager Zachary Warren—accusing them of masterminding a fraudulent
scheme to cover up Dewey’s financial troubles.

Davis, DiCarmine and Sanders argued
to Gritzner that by proceeding with the civil case in Iowa while the criminal
case is underway, the men would have to choose between preserving their Fifth
Amendment right to avoid self-incrimination and participating in their defense
of the criminal trial that is scheduled to go to trial in January 2015 because
both cases use some of the same evidence.

Vance’s office joined in requesting a
stay in the Aviva case in June. (The office also had filed and received a stay
in April from federal court in Manhattan in civil proceedings by the U.S.
Securities and Exchange Commission against Davis, DiCarmine and Sanders as well
as finance director Frank Canellas and controller Tom Mullikin, in which the
SEC accuses the men of accounting fraud.)

Aviva, represented by Kilpatrick,
Townsend & Stockton partner Helen Michael, asked Gritzner to deny the stay
request, arguing that the insurer’s civil case had been delayed long enough and
that 18 months had already passed without having entered discovery. The insurer was concerned that further delay
could harm its case because of statutes of limitation, among other reasons.

On Tuesday, Gritzner agreed to put
Aviva’s civil suit on hold until the criminal case is resolved, writing in his
ruling that the court “agrees with the defendants and [the district attorney of
New York County] that the criminal case should yield a great deal of evidence
that can be utilized in this proceeding once a stay is lifted.”

He added: “This court is greatly
concerned about the ability of witnesses to cooperate … due to cooperating
agreements they may have with [the district attorney of New York County] as
well as the logistical difficulties likely to arise during the six-month
criminal trial next winter and spring. The task of managing discovery herein
against the competing demands in New York offers the potential for substantial
conflict.”

The criminal case is slated to move
forward in August with the district attorney’s response to the defendants’
omnibus motions. The next court date is scheduled for Sept. 15.

In his order Tuesday, Gritzner
refused to reconsider his motion to dismiss Aviva’s suit. Instead he allowed
the defendants to file an interlocutory appeal with the Eighth Circuit, noting
in his order that there is no assurance that the Eighth Circuit would accept
the appeal.

“The case is one of the exceptional
circumstances where a certification for interlocutory appeal is justified,”
Gritzner wrote, adding, “An immediate appeal may materially advance the
ultimate termination of the litigation.”

Kevin Van Wart, Davis’ attorney and a
senior litigation partner at Kirkland & Ellis, told The Am Law Daily: “We
are pleased with the ruling and believe it was a sensible resolution.”